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Two Suits Filed Vs Goldman Over Abacus Transactions

Source: Dow Jones

Posted on 26 Apr 2010

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Two Goldman Sachs Group Inc. shareholders filed separate lawsuits Friday against Goldman Chief Executive Lloyd C. Blankfein and the company's directors related to the mortgage deal at the center of a civil fraud suit filed by the U.S. Securities & Exchange Commission last week and other similar transactions.

The lawsuits, filed in New York State Supreme Court in Manhattan, are the first known cases to be filed against Goldman since the securities regulator brought its complaint.

The SEC has alleged Goldman didn't tell investors in a structured financial product tied to subprime mortgages that hedge fund Paulson & Co. helped select the underlying portfolio of mortgages and had bet against the performance of the product. The transaction at issue in the SEC case was in early 2007 and is one of several so-called "Abacus" transactions.

The shareholder complaints filed Friday, known as derivative lawsuits, allege Blankfein, Goldman's chairman and CEO; Fabrice Tourre, a Goldman vice president; its board and others breached their fiduciary duties to shareholders in their oversight of 23 Abacus transactions between 2004 and 2007. Goldman issued at least $7.8 billion in notes as part of the transactions, according to the lawsuit.

Tourre, who allegedly structured the 2007 transaction, is a defendant in the SEC case.

"The individual defendants engaged in a systematic failure to exercise oversight of the company's 23 Abacus transactions, which were completed over a three and half year period," the lawsuit said. "As a direct and legal result of the individual defendants' wrongful conduct, Goldman Sachs has been significantly and materially damaged, faces billions of dollars of liability, has incurred and will continue to incur millions of dollars of expense in defending claims against the SEC and investors, and has suffered serious damage to its reputation and image."

The lawsuits were filed by law firms Faruqi & Faruqi LLP in New York and Gardy & Notis LLP in Englewood Cliffs, N.J., on behalf of Goldman shareholders Morton Spiegel and Robert Rosinek.

In a derivative lawsuit, shareholders typically seek to have any damages recovered returned to the company as opposed to being paid to individual shareholders.